In interviews with two major Israeli business news outlets, STL Professor Nitzan Shilon challenged the recommendations of a special litigation committee investigating the infamous Bank Hapoalim scandal. Shilon urged the “clawback” of unearned executive compensation and called for imposing personal financial liability on Hapoalim’s directors and officers.
At issue was the recent report of Bank Hapoalim special litigation committee concerning the bank’s schemes in Switzerland in 2002-2014 to aid and abet American citizens attempting illegally to evade U.S. taxes, which resulted in fines and other losses to the bank exceeding 1 billion U.S. dollars. Despite recognizing the contribution of the bank’s directors and officers to the scandal, the committee recommended against clawbacks of executive bonuses and against seeking personal liability from directors and officers for breach of their duty of care.
Shilon argued that the special litigation committee was wrong on both accounts. He argued that clawbacks are warranted because the large bonuses the managers received were based on unmerited profits generated by the bank’s criminal activity. He further argued that, because of the extraordinary circumstances of the tax avoidance scheme, the directors and officers should incur personal liability. He criticized the special litigation committee’s structural incentives and argued that its reliance on substantial insurance payments is insufficient to justify the exoneration of the directors and officers from a breach of their fiduciary duties.
Shilon called on Israeli regulators to introduce mandatory clawbacks for all performance-based elements of executive compensation whenever such pay is based on undue or erroneous financial information. He further called on institutional investors to push Bank Hapoalim to compel its directors and officers to pay out of pocket in settling their case. He argued that this is not only logical and fair, but will send the right message to corporate managers, public investors, and bank clients.
Professor Shilon was interviewed byThe Marker, a major Hebrew-language business newspaper published by Haaretz group, and for the popular current affairs radio show,Seder Yom.
The Markerarticle is availablehere; theSeder Yominterview is availablehere(both in Hebrew).
